Business and Property Court Forum 9 December 2019 – “Directors in the Twilight Zone”

The 7th Business and Property Court Forum Event took place on 9 December 2019, at Northumbria University, our amazing loyal host. This was one of our best attended events yet, bringing together over 70 professionals. We were honoured to welcome the Honourable Mr Justice Snowden, Vice Chancellor of the County Palatine of Lancaster, who delivered a riveting talk with the title “Directors in the Twilight Zone”. He was introduced to the audience by HH Judge Kramer.

The Vice Chancellor kindly provided the note of his talk for us to publish on our website, and this follows below.

DIRECTORS IN THE TWILIGHT ZONE

NEWCASTLE B&PC FORUM

This evening my topic is “Directors in the Twilight Zone”. Recent high profile corporate collapses have been accompanied with a series of fairly predictable headlines and media articles castigating the management of the failed company for fiddling whilst Rome burned. The media image is of directors paying themselves large salaries and declaring dividends to shareholders whilst failing to protect the interests of employees and creditors who stood to lose their jobs and were not paid the money they were owed when the company collapsed.

But what is the legal framework and what are the ground rules for directors when financial problems are encountered and the company moves from the sunshine into that twilight zone before the darkness of insolvency? What remedies are available to administrators or liquidators? I shall try to provide a high-level map of the maze through which directors must navigate and look at a few recent cases in the area.

The duties of directors are now codified in section 170-177 of the Companies Act 2006. In particular the basic fiduciary duty of a director is set out in section 172. A director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

That is of course a perfectly acceptable codification of the principal duty of a director when the corporate ship is sailing serenely in the calm and sunlit waters of profitability, buoyed up by a balance sheet surplus. But what must directors do when the storm clouds gather, the seas of commerce become rougher, and rocks start to appear on the horizon?

At this stage, even the drafters of the Companies Act 2006 ducked the task of identifying when, and in what respects, the interests of the shareholders must give way to the interests of creditors. Section 172(3) simply states that the duty imposed by section 172 has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.

That formulation begs at least three questions: (i) are there any such enactments or rules of law; (ii) if so, when do they apply; and (iii) what do they require?

The enactments                                                                                                                  

The law has always insisted that directors must maintain the subscribed capital of the company for the benefit of creditors. The Companies Act 2006 now provides a detailed statutory code setting out the circumstances in which companies can make distributions to shareholders out of profits available for the purpose, reduce their capital, buy back their own shares, or provide financial assistance for the purchase of their own shares. Those statutory provisions apply at all times, and not just when the company is heading for the rocks.

Likewise, reference should be made to the provisions of sections 213 and 423 of the Insolvency Act 1986 (fraudulent trading and transactions defrauding creditors). Although usually invoked by a liquidator, those prohibitions apply irrespective of whether the company was, at the relevant time, solvent or insolvent. They seek to penalise directors on the basis of their dishonest intentions towards creditors, or those who might in the future make a claim against the company.

There are then a number of important statutory provisions of the Insolvency Act 1986 that do not directly modify the duties of directors, but nonetheless apply with retrospective effect once the company has entered a formal insolvency process. They permit the court to avoid certain transactions that have taken place during a defined “look back” period of either one or two years prior to the commencement of the insolvency, depending on whether the counterparty is connected with the director or not. I speak of course of the power of the court to set aside transactions at an undervalue pursuant to section 238, to set aside preferences pursuant to section 239, and to set aside floating charges pursuant to section 245.

Whether this statutory net will catch a particular transaction may, of course, not be known until some time after the transaction in question. To that extent, if not moderated, the statute has the potential to be somewhat arbitrary in its operation. The statutory provisions therefore seek to limit the potential unfairness to directors and third parties of retrospective invalidation.

So, for example, a transaction at an undervalue should not be set aside if, at the time that it was entered into, the company (for which read the directors) did so in good faith and for the purpose of carrying on its business, and there were reasonable grounds for believing that the transaction would benefit the company. This in effect modifies the duties in section 172 by subjecting the usual subjective test for the discharge of a director’s fiduciary duty to a further objective requirement.

Likewise, a preference given to a creditor is not to be set aside unless the company which gave the preference (for which again read the directors) was influenced in deciding to give it, by a desire to put the creditor into a better position in the event of insolvency. That requirement is, however, presumed to be satisfied unless the contrary is shown in relation to a preference of a party connected with the director. This latter feature is critical: there are many cases in which preference claims have succeeded against parties connected with the directors. Cases in which preference claims have succeeded in respect of non-connected parties are as rare as hen’s teeth.

In addition to the provisions for avoidance of specific transactions there is a further provision of the Insolvency Act 1986 which has the potential to modify the way in which a director discharges his duties. Section 214 introduced a new remedy for wrongful trading when the insolvency legislation was given a major overhaul following the report of the Cork Committee. But the drafting of the wrongful trading section leaves much to be desired and it has generally not been considered to be a great success.

Section 214 kicks in when the company has gone into insolvent liquidation, and at some time before the commencement of the winding up of the company, a director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. From that time, the director is potentially liable to make such contribution to the assets of the company as the court shall think just. But the court shall not make such an order if it is satisfied that after the section had kicked in, the director took every step with a view to minimising the potential loss to the company’s creditors as would be taken by a reasonably diligent and skilful director.

Some have said that I robbed section 214 of some of its intended effect by my judgment in Ralls Builders in 2016. In that case, I found that a building company which had made very substantial losses over a hard winter, had carried on trading over the summer after the directors ought to have appreciated that it was doomed, and so section 214 had kicked in.

I had little sympathy for the directors, who gave evidence which left a lot to be desired in terms of its credibility. But at the end of the day, I was not satisfied that the continued trading – which had enabled the company to collect in payment over the summer for the jobs which it had finished – had actually increased the overall deficiency as regards creditors. Taken as a general body, it was quite possible that the general body of creditors were, overall, better off.

What had happened, however, was that the company’s bank into which receipts had been paid, had frozen the company’s overdraft and had been paid off. The losers in the liquidation were the older trade creditors who had not had their longstanding debts paid, together with those newer trade creditors who had given the company credit over the summer.

There was, however, no claim for fraudulent trading, and although the bank had been paid off, the directors had not given any personal guarantees and had no other obvious reason for intending to give the bank a preference.

On the wrongful trading claim I held that I could not order a payment to be made unless there had been loss caused to the company – in other words unless there had been a reduction in the overall deficiency as regards creditors. In doing so I followed two earlier authorities to similar effect in Purpoint Ltd and Continental Assurance.

I was also much influenced by the fact that the remedy under section 214 provides only for a contribution to be made to the company’s assets. Since any distribution of the company’s assets in the liquidation would be made to all creditors equally, I could not, therefore, target a remedy at only those creditors who had been induced to provide credit after section 214 had kicked in. To provide for those creditors to be paid in full, I would also have had to order the directors to provide money to pay off the creditors who were in existence before section 214 kicked in. But there was no causative link between the period of wrongful trading and the debts owed to those pre-existing creditors. I thought that would have been unfair to the directors to order payment of the larger amount, which in the absence of clear legislative wording could not have been what Parliament intended.

In that regard, I would draw attention to something which I did not know when I gave my judgment, and for which I am indebted to the diligent research of Mark Arnold QC, now head of South Square in London. At a recent Chancery Bar Association seminar, Mark pointed out that the Cork Committee had recommended that the new wrongful trading should subsume fraudulent trading and that the essence of the conduct giving rise to a remedy should be the incurring of liabilities with no reasonable prospect of meeting them.

This formulation would have included directors who ran a company which was able to pay existing debts only by incurring fresh obligations – in other words the very situation that I faced in Ralls Builders. The Cork Committee also recommended that the court should be given flexibility with regard to the beneficiaries of any award in respect of wrongful trading, so that, for example, a distinction might sometimes be drawn between debts incurred at different times.

But Parliament did not accept the advice of the Cork Committee. It retained fraudulent trading as a separate cause of action and then redrafted the wrongful trading test proposed by Cork Committee into the form in which it now appears in section 214. Parliament then rejected the proposal to give the Court wide powers to determine who should receive compensation in respect of losses caused by wrongful trading. In explaining that latter decision, the relevant government minister said in the Lords debate:

“[Cork’s] draft clause would allow the court to have the utmost flexibility about who should be paid any money recovered under the declaration. In our view this will create difficulties for the court if it attempts to distinguish between creditors who have lost money under different circumstances. It is obviously tempting to say that the creditors who should get the money are those whose debts have been incurred during the period of wrongful trading. On the other hand, if that had not taken place, the assets of the company might have been greater than they finally prove to be because of trading losses, and, therefore, pre-wrongful trading creditors will have lost money. In order to attempt to do justice between the various classes of creditors, the court would probably have to hear arguments put by various classes of creditors or classes of creditors. In our view, any money recovered should become part of the general assets available to creditors distributed pari passu among them all.”

So the legislature in 1985 apparently did not trust judges to make difficult decisions, and so refused to give the court the power to grant a targeted remedy requiring directors to compensate the particular creditors who had actually lost out due to the wrongful trading.

Now leap forward 30 years to October 2015. In that month, sections 15A and 15B were added to the Company Directors Disqualification Act 1986. They provide for the court to be able to order a director who has been disqualified to pay compensation if the conduct for which the person who has been disqualified has caused loss to one or more creditors of an insolvent company of which the person has at any time been a director. Importantly, as well as ordering payment of a contribution to the assets of the company, the new sections also allow the Court to ordered payment of a specified amount to the Secretary of State for the benefit of a particular creditor or creditors or class of creditors.

Though radical, this regime was not introduced following anything remotely resembling the report of the Cork Committee. It appears that it followed a presentation by the Head of Policy of the Insolvency Service to the R3 Northern Conference in May 2013, after which an attendee drew his attention to the Australian enforcement regime (which had then been in force for 20 years) which empowered the Courts there to make a compensation order in appropriate circumstances. This was then the basis for a relatively short consultation in 2013 and 2014 by the Department for Business Innovation & Skills.

The rationale for the proposed new provisions was described in the following way, 

               “. …the main purpose of the disqualification regime is to protect the market and consumers from acts of directors whose conduct falls below expected standards. Currently, those who have suffered loss as a result of misconduct do not generally benefit, and might feel disqualification is not a sufficient deterrent or form of redress.                                               

We are conscious that under the current [insolvency] regime, the measures that allow action against miscreant directors to secure financial redress for creditors are not heavily used… Since 1986 there have only been around 30 reported wrongful trading cases, about 50 preference claims and about 80 reported cases arising from undervalue transactions.       

When Parliamentary time allows we will give the Secretary of State the power to apply to the court for a compensation order against a director who has been disqualified… where creditors have suffered identifiable losses from their misconduct.”

So it would appear that the legislative intention was to fill perceived gaps and shortcomings in the insolvency regime more generally, albeit that this would only be where there was a disqualification order made.

The new legislation attracted much comment when enacted, and the first case to come out of this regime has just been decided by ICC Judge Prentis.

Noble Vintners Limited traded as a wine broker, its market being high net worth individuals, often found through telemarketing, who wished to acquire stocks of the most renowned wines for, usually, investment. There were three aspects to the company’s business: it would itself buy stock which it would then sell to its clients; it would buy particular wines for individuals; and it would sell wines on behalf of individuals. Wines in its hands were stored in temperature- and humidity-controlled bonded warehouses.

The company was short-lived. It was incorporated in 2011, but by early November 2015 it had very little prospect of meeting its substantial creditors. It continued to incur obligations, including those generated by its own recommendations to clients to buy or sell wine, which it very largely did not meet. Instead, at the instigation of its sole director, a Mr. Eagling, it paid almost all its income – about £560,000 – until its collapse into liquidation in June 2017, to another company controlled by Mr Eagling, without any commercial justification.

Mr. Eagling, who, after the demise of his company had disappeared to Northern Cyprus, was disqualified in his absence for the maximum 15 years.

The Secretary of State also applied for a compensation order against him. In a careful reserved judgment, ICC Judge Prentis granted the order as sought, requiring a payment of about £560,000 to the Secretary of State. He also ordered that the payment be split. £460,000 was ordered to be paid to 28 customers whose debts accrued after 2 November 2015 – mainly because they had paid in advance for wine that was not delivered and had not been earmarked so as to give them a proprietary claim to it. They were, in effect, the most deserving creditors at whose direct expense Mr. Eagling had benefitted himself. The other £100,000 was ordered to be payable to the general body of the company’s creditors. Any recoveries from Mr. Eagling were to be allocated pro rata between the two classes.

Apart from being the first case of its kind, the judgment is of interest because the ICC Judge expressly recognised and discussed the novelty of this new regime and some of the issues that arise in relation to it. He said,

“Radically, liability is based not on loss to the relevant company but on loss to its individual creditors. That removes any direct correlation between this regime and the remedies available under the Insolvency Act 1986.

….

This is therefore a new, free-standing, regime, and must be interpreted as such …. It is also a single regime designed in the public interest to cover the entirety of the conduct for which a director might be disqualified. That points, so far as is legitimate, to the most flexible possible interpretation.”

In that regard, the ICC Judge also noted that the Company Directors Disqualification Act 1986 lists factors which the court is bound to consider when deciding to make a disqualification order. These factors include not just responsibility for breach of legislative requirements, misfeasance, and breach of fiduciary duty, but also what the ICC Judge called the more open-ended responsibility for the causes of insolvency. He therefore concluded that,

“The compensation regime must therefore cater not just for breaches of duty, but for conduct which, while falling short of or outside of a breach, is nevertheless unfit or otherwise a ground for disqualification.”

This is a potentially significant development. As the ICC Judge remarked, the new compensation regime enables recoveries to be made from directors in cases where there is wrongdoing which causes no loss to the company. Although the Judge did not say so, this would clearly include wrongful trading cases such as Ralls Builders.

In a similar vein, the Judge could have mentioned that many disqualification orders are sought on the basis of somewhat diffuse allegations that directors have traded whilst insolvent and without due consideration for creditors. That is a lower and more imprecise test than the test for wrongful trading under section 214 which, as I have explained, is founded on the point being reached where the directors appreciated or should have appreciated that there was no reasonable prospect of avoiding insolvent liquidation.

The ICC Judge in Noble Vintners also referred to the possibility that compensation might be ordered in cases which he described as “problematic”. The example he gave was interesting: he mentioned cases in which the directors cause a company to continue to trade using monies owed to the Crown, such as VAT or PAYE. In such cases, trade creditors usually end up being paid at the expense of the Crown in much the same way as the bank in Ralls Builders was paid at the expense of trade creditors. This is something which does not fit easily within the established voidable preference remedy because it is often difficult to establish the intention to prefer trade creditors who press for payment rather than the Crown departments to whom tax is only due periodically. The cases are not “problematic” as such for the courts: but they are for the Crown departments involved.

These examples highlight the flexibility which is inherent in a regime which ties the jurisdiction to make compensation orders to a simple requirement that a disqualification order has been made plus a broad concept of causation. The judgment that someone is “unfit” to be concerned in the management of a company is a very open-textured concept which stands in complete contrast to the very carefully formulated provisions of the Companies Act as regards breaches of directors duties, and the detailed provisions of the Insolvency Act as regards avoidance of antecedent transactions, and fraudulent and wrongful trading.

The remedies which are now available under the new compensation regime also mark a complete change in attitude by the legislature to the role of the courts. Far from the cautious approach in 1985 in which judges apparently could not be trusted to make difficult decisions which distinguished between creditors, in 2015 judges were, with remarkably little consultation, given the freedom to craft an appropriate remedy to fit the facts and justice of the case.

There are, of course, numerous other unanswered issues over the compensation regime which will doubtless be played out in further cases, and on a case by case basis. ICC Judge Prentis alluded to some in his judgment. Will there be problems with directors facing a multiplicity of proceedings? What, for example, will be the relationship between a case in which an office-holder wants to pursue a remedy for the creditors generally, but the Secretary of State has his or her eyes on a disqualification order and compensation for a particular creditor or group of creditors? Might an office-holder with limited resources encourage the Secretary of State to take disqualification proceedings as an indirect means of obtaining compensation for creditors? And how are the costs of the insolvency and of such proceedings to be born as between the general body of creditors and the Secretary of State?

These are uncharted waters. All that can confidently be said is that this new regime will provide further work for lawyers and may well provide a greater deterrent to directors who might otherwise be prepared to take some risks to try to achieve the survival of their companies.

The “rule of law”

I now turn to consider the “rule of law” which might require directors to have regard to the interests of creditors rather than shareholders. This phrasing is generally thought to refer to the group of cases which hold that at some point on the downward path to insolvency of a company, its directors must give priority to the interests of creditors rather than those of its shareholders.

The case most often cited as starting the ball rolling in England in this regard was West Mercia Safetywear v Dodd in the Court of Appeal in 1988. A few days before it went into liquidation, Mr. Dodd had caused a wholly owned subsidiary of a company which he in turn wholly owned to make a transfer of monies to its parent company’s bank account for the purpose of reducing the parent company’s overdraft to the bank, which Mr. Dodd had guaranteed. It was an obvious preference and breach of duty on the part of Mr. Dodd, but the trial judge had held that the claim failed because the payment had been approved by the parent company as the sole shareholder of the subsidiary company.

The Court of Appeal overturned that decision, holding that when a company is insolvent, its shareholders cannot ratify acts of the directors which disregard the interests of creditors. Dillon LJ adopted the approach of the Australian courts in Kinsela v Russell Kinsela to the effect that when a company is insolvent, its assets must be treated as belonging in practical terms to its creditors for whose benefit they will be administered under the statutory trusts that apply in a liquidation. As such, the interests of creditors intrude so as to modify or displace the power of the directors to deal with the assets of the company for the benefit of its shareholders.

Over the years there were a series of cases in which the courts sought to apply and develop this principle. In a number of cases the principle was applied where the company was not actually insolvent but where it was at risk of insolvency, either generally or as a result of the transaction itself. The difficulty, however, was in formulating a workable test of precisely when the directors had the duty to give consideration to the interests of creditors and in identifying what they were then required to do.

A very common formulation in the cases was that directors fall under a duty to have paramount regard to the interests of creditors when the company is insolvent, or of doubtful solvency, or on the verge of insolvency, so that it is in effect the creditors’ money which is at risk. But other tests were offered, including whether the transaction in question took place at a time at which there was a real, rather than a remote, risk to creditors; or that the proposed transaction itself involved a real, rather than a remote, risk to creditors.

It will, of course be appreciated that any of these formulations extend the twilight zone well before the time at which the wrongful trading test under section 214 would be triggered; they might or might not coincide with a one or two year “look back” period for avoidance of antecedent transactions; and it is completely unclear how they might relate to the developing jurisprudence under the new disqualification compensation regime.

A director might well be forgiven for wondering how on earth to steer a safe path in this rather shadowy judicial half-light.

There has, however, been a recent attempt by the Court of Appeal, and in particular by Lord Justice David Richards, one of my predecessors as Vice-Chancellor of the County Palatine, and a company and insolvency lawyer of real experience and authority, to shed some light, or at least to provide a clear guideline for this rule of law.

BAT v Sequana involved a complex set of facts. In essence there was a complaint about two large dividends that had been paid by a company (AWA) to its parent (Sequana) at a time at which AWA company had ceased trading and had one contingent liability in respect of an indemnity for environmental claims arising from river pollution in the US.

The claimants first contended that the provisions that had been made in AWA’s relevant accounts were inadequate and that the dividends were unlawful because they did not comply with the requirements of Part 23 of the Companies Act 2006. That claim failed on the facts: the triajudge held that the dividends were lawful so far as the statute was concerned.

However, the dividends were also challenged on the bases (i) that the dividends were transactions at an undervalue for the purposes of putting assets beyond the reach of persons who might at some time make a claim against AWA, contrary to section 423 Insolvency Act 1986; and (ii) that in deciding to pay them the directors had failed in their duty to have paramount regard to the interests of creditors at common law.

At trial, the judge had held that that a dividend could fall within section 423. The Court of Appeal agreed. It rejected the suggestion that payment of a dividend could be regarded as a “gift” and held that even though it was ordinarily to be regarded as a unilateral act of a company, it was properly to be regarded as a “transaction” because it gave effect to the shareholders’ rights under the articles and amounted to a return on their investment. It was, moreover, a transaction for which the company received no consideration.

Accordingly, since the evidence clearly showed that the dividends had been declared for the prohibited purpose of putting assets of AWA beyond the reach of persons who might make a claim against it, they fell foul of section 423.

That part of the case is of interest in itself: it is, however, the second part of the case which is of greater interest. As I have said, this related to the trigger for the common law duty to have primary regard to the interests of creditors rather than shareholders.

Before the trial judge, this claim failed because the judge did not consider that the duty to put creditors first had been engaged. The judge explained her reasoning,

“Taking all these factors into account, I do not think that AWA could be described as on the verge of insolvency or of doubtful solvency, or as being in a precarious or parlous financial state. The risk it faced that the best estimate would turn out to be wrong and that the company might not have enough money, when called upon in the future, is a risk that faces many companies that have provisions and contingent liabilities reflected in their accounts. It is not enough in my judgment to create a situation where the directors are required to run the company in the interests of the creditors rather than the shareholders of the company.”

The claimant appealed, contending that the trial judge should have held that payment of the dividends introduced a real, as opposed to a remote, risk of insolvency.

On appeal, David Richards LJ traced, at some length, the history in various jurisdictions of the principle to which I have been referring. He accepted that the duty might be triggered when a company’s circumstances fall short of actual, established insolvency, but he rejected the idea that, at present, the common law had introduced this duty when there was merely a “real risk” of insolvency. He noted that this would be to lower the bar significantly lower than a test which referred to a company being “on the verge” of insolvency or “likely to become” insolvent. David Richards LJ explained that given all of the competing policy considerations, it would not be appropriate for the courts to introduce a new test as a development of the common law.

Instead, David Richards LJ endorsed a formulation which had been used by the Court of Appeal in Bilta in 2014, namely that the duty arises when directors know, or should know, that the company is, or is likely to become, insolvent. He added that in this context, “likely” means “probable”.

David Richards LJ also added that on the facts he did not need to decide whether the content of the duty, once engaged, was simply to give consideration to the interests of the creditors at that point, or to treat the interests of the creditors as paramount. Having indicated that he did not need to decide the point, he nonetheless added,

“I therefore express no view on it, save to say that where the directors know or ought to know that the company is presently and actually insolvent, it is hard to see that creditors’ interests could be anything but paramount.”

Among all the gloom for directors to which I have been referring, you might think that this was a ray of light and a test that has the merit of simplicity. But the law may still not be settled: the Supreme Court granted permission to appeal to the claimants in BAT v Sequana earlier this year.

Conclusion

Whilst it does not appear that it is quite open season on directors, they face many hazards when in the twilight zone and trying to steer a company through the choppy waters of financial difficulty. Given that, by most accounts, we may be entering a period of economic uncertainty, it is perhaps unfortunate for directors and their advisers that the law as regards their duties concerning creditors is not clearer or more certain.

The B&PC

Having filled you with delight or gloom depending on whether you are a lawyer or a businessman, let me now try to introduce a more positive note into proceedings by saying a few words about the role that I have taken over as supervising judge of the B&PC for the North and North-Eastern circuits, and my ambition for the next few years.

In taking over the role I am delighted to be returning to the North East where I grew up and which I still feel is home.

In the interests of full disclosure I should also say that I regard Manchester with great affection as it was the source of much knockabout commercial work in the early years of my practice at the Bar, and I am guaranteed of a warm welcome in at least half the bars in Liverpool for having helped unseat the previous unloved American owners of Liverpool FC.

The promise of the B&PC was that no case was too big to be tried in the regions. My mission is to do as much as possible to deliver on that promise by ensuring that the B&PCs provide a high quality dispute resolution service to support local businesses and local legal practitioners.

Note I use the word service. I think that it is important to recognise that, unlike many other areas of the judiciary, the B&PC is here to provide a service. Our customers are not always right – 50% of them usually aren’t entirely satisfied – but I recognise that those who have repeat business, and the lawyers who have to sell their services to them, need a quality product. That is because if you don’t like what we provide, you can take your business elsewhere.

But that would not be good for any of us. I see no reason why cases generated in the North – by which I mean the northwest and the northeast together – should not be capable of being tried locally in the North rather than in London.

I do see the future being in more co-operation between the circuits across the North. In that regard I welcome moves to combine a number of the specialist bar associations to bring them into line with many of the law firms that already operate across the entire region.

But on my travels in the other regions for which I now have responsibility, I have been given various reasons why there is still a tendency for larger cases to be issued in London rather than in the regions.

So what I have heard elsewhere? Well let me mention a number of the factors that I have been told may have an effect on the decision as to whether to issue cases in London or locally.

1. Quality of Judges

Obviously the quality of judicial decisions and the court experience is critical. My impression and initial soundings are that you are exceptionally lucky in Newcastle to have a s.9 judge and DJs of real calibre and who are enthusiastic about the B&PC. And they are engaged: they are all here this evening. That speaks volumes.

Let me also bust one myth about London. Not all cases get a HCJ in London. Most don’t. Same DHCJ as you get here.

And wait times in London far exceed those in the regions.

2. Quality of local court staff

Recognise that it is critical to have a depth of experienced staff for B&PC work. HMCTS is under severe strain with loss of personnel to other gov departments and the private sector. So where HMCTS staff perform well it is vital that we acknowledge that and work hard to build relations between them and local practitioners and their clerks and outdoor clerks.

3. Costs

Regional firms tell me that they are very happy to undercut London rates because they can and it is a competitive advantage that they can pass on to clients. But they also tell me that they resent their bills then being cut down further by (as they would see it) parsimonious local judges, when, so they say, in London a regional bill will be regarded as very modest and simply waived through.

This may be just a perception, or may have some truth in it. Either way it is essential to start a dialogue with a view to ironing out differences in approach. That will involve discussions between judges from London and the Regions and discussions between the judiciary and practitioners to educate and inform in both directions. When the time comes – soon – I very much hope you will be able to help me in this area.

On that note – fees and costs – which I know is very dear to all of your hearts, I shall end. I will be very interested to hear your views over drinks this evening and at other events locally.

Above all I should stress that as well as speaking candidly myself, I am very keen to hear your thoughts and to establish an open dialogue between the B&PCs and practitioners to achieve a common business purpose.

Thank you for listening and I look forward to seeing you in court or at future B&PC events.

Mr Justice Snowden and HH Judge Kramer

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